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Cincinnati,  Ohio,  April  16,  1901. 

To  the  Honorable  Board  of  Trustees  of  the  Cincinnati  Southern 
Railway. 

GknTtkmen  : In  the  capacity  of  a tax-payer,  I respectfully 
address  this  protest  against  the  acceptance  of  a proposition  by 
Mr.  Samuel  Spencer,  president  of  the  C.,  N.  O.  & T.  P.  Railway 
Co.,  lessees  of  the  Cincinnati  Southern  Railway,  dated  February 
28,  1901,  for  a sixty  years’  extension  of  lease. 

I also  protest  against  the  acceptance  of  a supplementary  prop- 
osition made  by  Mr.  Morrison  on  behalf  of  the  lessee  company, 
for  the  following  reasons,  briefly  stated  in  business  terms  : 

The  proposed  rental  is  inadequate. 

The  length  of  the  proposed  extension  is  unreasonable. 

The  absence  of  an  effective  amended  covenant  governingserv- 
ice  charges  with  satisfactory  guarantee  of  its  full  enforcement  de- 
manded by  all  the  commercial  and  industrial  organizations  of  the 
city  which  have  taken  action. 

The  absence  of  authority  of  law  to  make  a loan  of  the  money 
or  credit  of  the  city  for  any  purpose. 

Supporting  these  reasons  I briefly  present  facts  disclosed  by 
the  records  of  your  board  and  the  official  annual  printed  reports 
of  the  lessee  company  as  connected  with  recent  and  current  local 
history. 

The  existing  lease  was  awarded  by  your  board  to  the  lessee 
company  as  the  best  of  thirteen  bidders.  The  lease  was  divided 
into  five  periods  of  five  years  each.  The  rental,  payable  quarterly 
in  cash,  for  the  first  period  was  $800,000  per  annum  ; for  the  sec- 
ond, $900,000;  for  the  third,  $1,000,000;  for  the  fourth, 
$1,090,000,  and  for  the  fifth,  beginning  October  12,  1901,  and 
closing  same  date,  1906,  $1,250,000.  It  was  executed  and  the 
property  passed  to  the  lessee  October  12,  1881. 

The  railway,  while  open  for  traffic  at  that  time,  was  in  an 
unfinished  condition.  Clause  V.  of  the  lease  required  at  its  ter- 


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ruination  the  entire  line  of  railway  to  be  in  the  condition  of  a 
first-class  single-track  railroad,  complete  in  all  respects.  The  cost 
of  this  obligation  of  said  clause  was  counted  as  rental,  in  addition 
to  the  cash  rental  under  Clause  II.  of  the  lease.  As  a part  of  the 
rental  are  requirements  (described  in  lessees’  accounting  as  “ per- 
manent betterments  to  revert  to  the  city  of  Cincinnati  at  the 
maturity  of  the  lease  ”)  which  will  not  attach  to  any  extension  ; 
the  aggregate  of  this  obligation  will  considerably  exceed 
$3,000,000. 

The  $12,000  per  annum  for  maintenance  of  the  trust,  per 
Clause  IX.,  was  also  a part  of  the  rental.  Presuming  this,  is  to  be 
.so  treated  in  the  proposition  for  extension,  it  wrill  not  be  further 
considered  in  this  discussion  and  comparative  statement. 

With  the  above  explanation,  we  find  the  average 

yearly  rental  for  the  entire  period  of  twenty-five 


years,  to  be  paid  in  cash,  was $i, 008,000 

The  average  yearly  rental  to  be  paid  in  permanent  bet- 
terments reverting  to  the  city  of  Cincinnati  at 
the  maturity  of  the  lease  (partly  estimated)  is  . . 132,000 


Total  average  rental $1,140,000 


Mr.  Morrison’s  proposition,  on  behalf  of  the  lessee  company, 
for  a sixty-year  extension  of  the  lease  from  October  12,  1906, 
is  for  a completed,  up-to-date  railroad  of  the  highest  type,  with- 
out requirements  for  permanent  betterments,  as  under  the  exist- 
ing lease,  is,  for  the  first  period  of  twenty  years,  $1,050,000  per 
annum;  for  the  second  period,  $1,100,000  per  annum;  for  the 
third  period,  $1,200,000  per  annum.  Compared  with  the  average 
yearly  rental  of  the  present  lease,  it  is  less  for  the  first  period, 
$90,000 ; for  the  second,  $40,000,  and  more  for  the  third  period 
— $60,000  per  annum.  These  respective  amounts,  if  annually 
placed  in  a sinking  fund,  and  interest  semi-annually  computed 
at  the  rate  of  3)^  per  cent,  per  annum,  will,  at  the  end  of  sixty 
years,  aggregate  a net  loss  to  tax-payers  of  $10,940,842.33. 

The  existing  lease  was  the  result  of  competition  soon  after 
the  South,  its  field  of  activity,  devastated  by  war,  was  in  the 
turmoils  of  reconstruction.  It  is  now  the  scene  of  greater  enter- 
prising prosperity  than  any  other  section  of  this  country — possi- 


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bly  exceeding  any  equal  area  of  the  world’s  surface  in  such 
natural  resources  as  guarantee,  without  limit,  its  continued 
growth  ; its  traffic  now  overtaxing  the  ability  of  railroads  to 
move,  and  increasing  as  rapidly  as  facilities  for  handling  can  be 
provided. 

Is  it  possible  that  these  changed  conditions  have  reduced  the 
rental  value  of  this  great  property  which  you  hold  in  trust  for 
all  the  people  of  this  city  ? If  not,  comparison  with  the  rental 
of  $1,250,000  per  year  for  the  last  period  of  the  present  lease 
(which  has  five  and  one-half  years  yet  to  run)  will  show  a yearly 
reduction  of  $200,000  for  the  first ; $150,000  for  the  second  ; and 
$50,000  for  the  third  period.  These  differences  for  each  period, 
if  computed  as  above — semi-annually  at  3^  per  cent,  rate,  will 
at  the  end  of  the  sixtjr-year  extension  show  an  aggregate  loss  to 
the  tax-payers  of  $33,142,307.75. 

Of  all  the  covenants  of  the  present  lease,  the  only  one 
which  has  failed  to  serve  the  purpose  intended  is  that  portion  of 
Clause  VI.  to  protect  the  commercial  and  industrial  interest  of 
the  city  in  preventing  discrimination  in  service  charges  against 
it  and  roads  terminating  therein.  The  extension  of  the  lease, 
instead  of  correcting  this  breach  of  the  covenant,  will  perpetuate 
for  sixty-five  years  its  non-observance,  thus  annulling  the  cove- 
nant which  was  the  paramount  purpose  of  the  city  in  its  con- 
struction of  the  road. 

When  the  time  arrives  for  the  re-leasing  of  the  road  by  com- 
petitive bidding,  the  Trustees,  in  the  light  of  past  experience, 
may  formulate  a covenant  which  will  secure  to  the  city,  perma- 
nently, the  advantages  desired  and  made  possible  by  its  important 
strategical  geographical  location. 

In  justice  to  the  coming  generation  the  period  of  a new  lease 
should  not  exceed  twenty-five  years,  as  each  succeeding  generation 
should  have  the  right  to  deal  with  resulting  conditions  as  they 
develop.  While  development  is  so  inten.se  and  progress  is  so 
rapid,  it  is  unwise  for  one  generation  to  anticipate  the  needs  of 
the  next,  and  to  so  legislate  as  to  interrupt  the  freedom  of  those 
who  come  after  and  prevent  such  action  on  their  part  as  may  be 
necessary  to  protect  their  own  best  interest. 

There  is  no  precedent,  either  National,  State,  or  municipal, 


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for  disposing  of  public  property  without  public  competition.  The 
courts  require  it  in  the  administration  of  private  trusts  under  their 
jurisdiction.  I therefore  assert  that  no  reasonable  interpretation 
of  the  law  under  which  you  are  now  acting  will  justify  the  dis- 
posal and  alienation  of  this  property  of  such  overwhelming  mag- 
nitude, for  a period  nearly  two  and  one-half  times  greater  than 
the  original  lease. 

The  National  Government  in  promoting  the  building  of  the 
Union  & Central  Pacific  Railroads,  loaned  its  bonds  to  a large 
amount,  secured  by  mortgage  on  the  property,  maturing  in  a 
much  shorter  period  than  is  proposed  for  this  extension. 

The  public  press  was  liberally  used  by  those  interested  in  de- 
preciating in  the  public  estimation  the  value  of  the  properties, 
hoping  thus  to  influence  Congress  and  the  Administration  (as 
now,  in  case  before  you,  is  being  systematically  done)  to  secure 
a reduction  of  the  claim  and  its  extension  over  a long  period  at 
greatly  reduced  interest  or  rental  charge.  To  the  credit  of  the 
Government  the  property  was  ordered  sold  at  public  competition. 
Iu  each  case,  before  the  dates  of  sale  arrived,  full  and  satisfactory 
settlement  and  full  payments  were  made.  Quickly  these  prop- 
erties became  immensely  valuable,  as  compared  with  previous 
estimates. 

The  city  of  New  York  has  recently  illustrated  the  power  and 
value  of  public  competition  when  dealing  with  great  public  in- 
terests. The  contractor  for  its  great  subway  electric  transit  sys- 
tem is  required  to  make  a bond  for  $6,000,000  secured  by  the  de- 
posit of  satisfactoty  collaterals.  The  city  issues  $35, 000,000 
bonds,  the  proceeds  of  which  are  to  be  used  in  payment  as  the 
work  progresses  in  accordance  with  specifications,  thus  constantly 
increasing  the  security.  The  contractor  pays  the  interest  on  the 
bonds,  and  in  addition  a sufficient  per  centum  annually  to  pro- 
duce a sinking  fund  for  their  extinguishment  at  maturity,  fifty 
3^ears  from  date  of  contract,  when  the  road,  its  equipment  and 
going  business,  passes  to  the  city  free  from  debt  ; the  con- 
tractor securing  reimbursement  and  profit  from  the  use  of  the 
property  between  the  time  of  completion  of  the  work  and  ma- 
turity of  the  contract,  which  is  for  a ten-year  shorter  period  than 
proposed  for  the  extension  of  the  lease  of  your  property  with  a 


5 


going  business  of  phenomenal  earning  power  while  yet  in  its  in- 
fancy. 

The  lessee  company  was  a voluntary  bidder,  and  doubtless 
had  full  information  as  to  the  obligations  of  the  lease  and  physical 
condition  of  the  property,  in  making  its  venture  solely  for  profit  ; 
precisely  the  same  as  any  individual  or  corporation  engaging 
in  any  business.  The  owners,  whom  you  represent,  reserved  no 
control  over  and  assumed  no  responsibility  or  risk  for  the  man- 
agement of  the  property  by  the  lessee  company. 

It  may  be  useful  to  group  briefly  some  facts  gleaned  from  its 
official  reports. 

Clause  VI.  of  the  lease  requires  the  lessee  to  “ provide  and 
keep  the  said  line  of  railway  supplied  with  rolling  stock  and 
equipment,  so  that  the  business  of  the  same  shall  be  preserved, 
encouraged  and  developed,  and  that  the  same  shall  at  all  times  be 
done  with  safety  and  expedition,  and  the  public  accommodated 
in  respect  thereto  with  all  practical  conveniences  and  facilities, 
and  that  all  future  growth  of  such  business  as  the  same  may 
arise  or  be  reasonably  anticipated  shall  be  fully  provided  for  and 
secured,  and  that  all  reasonable  efforts  shall  be  used  to  maintain, 
develop  and  increase  the  business  of  said  railway.” 

A paragraph  in  Mr.  Spencer’s  letter  to  your  board  of  Febru- 
ary 28,  1901,  accompanying  copy  of  proposal  for  extension  of 
lease,  finds  an  admitted  flagrant  violation  of  the  above  vital  obli- 
gation a reason  for  your  continuing  the  property  under  the  con- 
trol of  his  company  sixty  years  after  the  expiration  of  the  pres- 
ent lease.  It  reads  as  follows  : “ For  want  of  such  expenditures 
and  such  equipment  the  business  has  already  suffered  during  the 
past  few  years,  and  the  effect  is  more  keenly  felt  now  than  at  any 
previous  time.” 

Relating  to  a donation  of  $850,000  asked,  another  paragraph 
reads  as  follows  : “If  you  say  no,  and  require  thus  a strict  ful- 
fillment of  the  contract,  of  course  you  will  get  it.  The  company 
will  meet  its  obligations  and  the  rental  is  amply  secured.” 

A cursory  examination  and  analysis  of  the  official  annual  re- 
ports of  the  lessee  company  seem  to  disclose  the  following  inter- 
esting facts  : It  organized  with  a capital  of  $3,000,000,  51  per 
cent,  going  to  what  was  then  known  as  the  Krlanger  Syndicate 


6 


and  49  per  cent,  to  local  subscribers.  It  developed  later  that  the 
capital  was  inadequate  for  the  business  it  had  undertaken.  Not- 
withstanding this,  its  official  annual  reports  show  that  early  in  its 
history  there  was  withdrawn  as  dividends  $525,000.00.  With- 
drawn by  disbursements  under  receivership  : 

Doughty  over-issue  et  al $671,723.29 

Charged  from  property  account  to  loss  account  for  or- 
ganization expenses 157,138.54 

Aggregating  $1,353,861.83,  no  part  of  which  can  be  said  to  have 
been  lost  in  the  legitimate  operation  of  the  property.  Had  this 
large  amount  been  invested  in  necessary  equipments,  as  required 
by  the  business,  also  by  Clause  VI.  of  the  lease,  the  revenue 
would  have  been  so  greatly  increased  as  would  have  obviated  the 
expenditure  of  $1,983,055.74  as  shown  in  its  annual  reports  was 
paid  for  mileage  on  rolling  stock  from  December  31,  1886,  to 
June  30,  1900,  in  excess  of  that  received. 

Notwithstanding  the  handicap  placed  on  the  business  of  the 
lessee  company  by  its  failure  to  comply  with  the  covenants  of 
Clause  VI.,  its  annual  reports  show  net  earnings — 


1898 $272,262.23 

1889 483,005.50 

1900 : 319,658.50 


Aggregate  net  earnings  for  benefit  of  stockholders  $1,074,926.2 3 

Average  for  the  three  years,  $358,308.74,  or  average  per  cent, 
per  annum  11.45  011  the  original  investment,  a result  equaled  by 
few,  if  any,  railroad  systems  in  the  United  States  during  the  same 
period. 

The  road  was  operated  last  year  at  72.26  per  cent,  of  the 
gross  earnings.  Had  it  been  operated  at  the  same  percentage 
of  the  two  previous  years,  66.21  per  cent.,  the  surplus  for  stock- 
holders would  have  been  $310,000  greater. 

Regarding  increase  in  operating  expenses,  the  official  annual 
report  of  June  30,  1900,  says  : “ The  increase  of  $256,678.95  in 

maintenance  of  way  and  structures  was  due  chiefly  to  the  cost  of 
improvements  required  to  be  made  to  the  property  under  the 
terms  of  the  lease,  such  as  renewals  of  bridges  and  culverts,  with 


7 


permanent  structures,  new  fencing,  block  signals,  and  arching  of 
tunnels.” 

The  approaching  completion  of  permanent  betterments  re- 
quired by  the  lease  now  being  expedited,  will  reduce  operating 
expenses  to  the  normal  percentage,  thus  offsetting  the  increased 
rate  of  rental  accruing  during  the  last  period  of  the  lease  which 
he  mentions. 

Your  position  under  the  trust  is  peculiar  ; representing  this 
city  in  an  important  venture  which  is  unique  in  municipal  history, 
and  which  has  attracted  national  attention  of  students  of  eco- 
nomics. The  decision  you  must  make  involves  a great  responsi- 
bility, without  precedent  in  the  administration  of  a municipal 
trust. 

The  law  under  which  you  are  asked  to  act  is  not  mandatory  ; 
its  use  is  subject  to  your  discretion.  The  financial  question 
involved  during  the  period  to  be  dealt  with,  though  of  stupendous 
proportion,  is  not  paramount. 

The  property  was  acquired  to  protect  the  city’s  threatened 
industrial  and  commercial  supremacy  as  the  leading  city  of  the 
great  Ohio  Valley,  connecting  it  and  railroads  centering  therein 
with  the  railroad  systems  of  the  South  centering  at  Chattanooga. 
You  are  now  asked  to  part  with  its  control  for  sixty-five  years  with- 
out a shadow  of  protection  for  the  future , without  business  competition 
and  for  an  inadequate  rental , to  a te?iant  who  admits  having  violated 
the  important  protective  clause  of  the  present  lease. 

It  is  pertinent  to  inquire  who  compose  the  lessee  company,  so 
energetically  and  persistently  urging  action  to  secure  this  great 
property  at  such  time  as  competition  for  it  is  impossible.  They 
are  those  who  negotiated  under  the  lead  of  Andrews  & Taylor 
through  the  Board  of  Sinking  Fund  Trustees  the  so-called  sale  of 
1896,  but  are  now  led  by  the  two  local  directors  and  a few  affili- 
ated local  stockholders,  with  the  same  systematic  organization, 
under  well-paid  literary  agents  engaged  in  artificially  stimulating 
a fictitious  public  sentiment,  hoping  thereby  to  secure  your  favor- 
able action. 

I again  ask,  who  are  the  lessee  company  ? 

My  information  is  that  on  July  1,  1898,  the  shares  of  stock 
of  the  Cincinnati,  New  Orleans  & Texas  Pacific  Railway  Com- 


8 


pany  appeared  on  the  company’s  transfer  register  in  the  following 
names,  viz.: 


Southwestern  Construction  Company  . . . 20,492  shares 
Present  directors  of  the  lessee  company  . . 13  shares 

Former  directors  of  the  lessee  company  . . 29  shares 

Local  stockholders  affiliated  and  acting 

with  the  lessee  company 2,383  shares 

All  other  stockholders 7 >083  shares 


Total  issued 30,000  shares 


The  Southwestern  Construction  Company  is  a New  Jersey 
corporation,  probably  formed  for  the  purpose  of  evading  the 
double  liability  feature  of  Ohio  corporation  laws,  and  acquired 
their  first  holdings  of  C.,  N.  O.  & T.  P.  Railway  stock  early  in 
1897  through  the  Central  Trust  Company  of  New  York,  one 
James  C.  Quiggle  and  others  acting  for  the  Andrews  & Taylor 
Syndicate  and  their  associates  identified  with  the  raid  of  1896, 
issuing  their  own  stock,  share  for  share,  in  exchange  for  the 
stock  of  the  C.,  N.  O.  & T.  P.  Ry.  Co. 

The  stock  of  the  Southwestern  Construction  Company  is 
held  as  follows  : 


By  the  Southern  Railway  Company  ....  166  shares 

By  the  Alabama,  Great  Southern  Railway 

Company,  Limited 8,333  shares 

By  the  Alabama,  New  Orleans,  Texas  & 

Pacific  Junction  Railways,  Limited  . . 4,487  shares 
By  the  C.,  H.  & D.  Railway  Syndicate  et  al  7,509  shares 


Total  issued : . . . . 20,492  shares 


It  will  be  observed  that  about  70  per  cent,  of  the  stock  of 
the  C.,  N.  O.  & T.  P.  Co.,  represented  by  shares  of  the  South- 
western Construction  Company,  appears  to  be  owned  by  the 
above  named  corporations,  who  will,  therefore,  become  the  bene- 
ficiaries of  any  extension  of  the  existing  lease,  competition  not 
being  possible.  The  original  51  per  cent,  of  the  C.,  N.  O.  & T.  P. 
stock,  subscribed  for  and  issued  to  the  Erlanger  Syndicate,  or 
their  representatives,  after  several  changes  of  ownership  and  con- 
trol, is  now  consolidated  in  the  treasury  of  the  Southwestern 
Construction  Company,  as  above  shown,  and  is  believed  to  have 
cost  its  present  owners  little  or  nothing.  The  additional  29  per 


9 


cent,  of  C.,  N.  0.  & T.  P.  stock,  represented  by  stock  of  the 
Southwestern  Construction  Company,  and  now  owned  as  above 
stated,  has  been  purchased  from  time  to  time,  through  local 
brokers  from  local  stockholders,  at  market  rates,  some  as  low  as 
5 cents  on  the  dollar,  and  probably  has  cost  the  present  owners 
less  than  35  cents,  average. 

If  the  present  owners  of  the  20,492  shares  of  the  capital 
stock  of  the  Southwestern  Construction  Company  will  offer  to 
sell  their  holdings  at  cost,  responsible  local  parties  stand  ready  to 
form  a syndicate  to  purchase  it  ail  for  cash,  thus  assuming  all 
the  obligations  of  the  existing  lease,  and  relieving  the  Spencer 
Syndicate  of  the  alleged  burdens  and  hardships  of  which  they 
complain. 

Respectfully, 

JAMES  E.  MOONEY. 


